Transportation and Logistics

1. Transit privileges

• Stop off

• When the vehicle is loaded with cargo destined for more than one stop, a stop-off charge may be added to the bill. The per-mile rate is determined by the location of the last point on the route

• EXAMPLE- Shipment of 18000 lb. is originated at point I. Additional 36000 lb. is to be combined with it at point J and both shipments are to move to point K for delivery. Stop off privilege: $25

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• WITHOUT stop-off

• 18000 * .5 / 100 = 90
• 54000 * 1 / 100 = 540
• TOTAL 630

• WITH stop-off

• 54000*1.1 / 100 = 594
• Stop-off privilege = 25
• TOTAL 619

• Two types of stop offs for partial unloading

• All unloading is made from the equipment in which the shipment was originally loaded
• Transfer at a trans loading point is made to different equipment before moving on to final destination

• EXAMPLE- Suppose 3 shipments of J=8,000lb. K=12,000lb. and L=10,000lb. originating at I are to be delivered in the following way. Stop off privilege: $15/stop

• WITHOUT stop-off

• 8,000 * 3.05 / 100 = 244
• 12,000 * 3.35 / 100 = 402
• 10,000 * 3.60 / 100 = 360
• TOTAL = 1006

• WITH stop-off

• 30,000*3 / 100 = 900
• Stop off 15 x 2 = 30
• TOTAL 930

• Advantages

• Savings on transportation costs
• Savings on inventory holding costs

• Cycle inventory

• The average amount of inventory you have between two prediction batches

• EXAMPLE- A company has 2 warehouses, one in Chicago and one in Cleveland. The Boston DC supplies both. Each warehouse receives a truckload shipment every 40 days, though replenishment quantities and truckload costs differ.

• Cleveland: 15000 pounds at $1080
• Chicago: 25000 pounds at $1800

Alternative A is to ship 40,000 pounds to Chicago every 40 days with a stop off in Cleveland to unload 15000 pounds, in which case the transportation cost is $1800 plus a stop-off fee of $144. What is the impact on transportation costs?

Alternative B how many items should we ship and with which frequency in order to reduce inventory holding its costs by 32.5%?

• Current situation

• 1080 + 1800 / 40 days= $72

• Option A (with stop-off)

• 1800 + 144 fee / 40 days = $48.6/day
• 1 – 48.6/72 = 0.325 reduction

• Option B

• 1 – x/20000 = 0.325 (20 because with cycle inventory you do the average between two batches 40/20)
• x = 13500 * 2 (two weeks) = 27000

• EXAMPLE- A power company is Missouri can buy coal for its generating plants from western mines in Utah or from mines in Pennsylvania. The maximum purchase price for coal of $20 per ton at the Missouri plant is set according to the price of competing energy forms. The cost of mine coal in the west is $17 per ton and in the east $15 per ton. Transportation cost from eastern mines is $3 per ton. What is the value of transportation from western mines?

• Current situation

• 15 + 3 = 18
• 17 + x = 18
• x = 1

2. Export Activities

• Terms of trade

• Define where responsibilities transfer from exporter to importer

• Incoterms

• 13 different incoterms divided into 4 primary groups

• E- term: Importer takes full responsibility
• F-term: exporter has responsibility for getting shipment from origin to port of embarkation
• C-term: Exporter obtains and pays for main transport leg and/or cargo insurance
• D-term: Exporter responsible for delivery of shipment to foreign destination

• Cargo Insurance

• International shipments exposed to larger financial risks and transport perils

• Terms of payment
• Freight documentation

3. Case N.A.M.

• From Prague you can ship to: DEADLINE: Nov 15

• Prague → Hamburg 18 days

• Rail 3
• Waterways 6

• Prague → Rotterdam 17 days

• Rail 4-5

• Best alternative? Prague → Hamburg (rail 3 days)+ 18 days → Santos
•  Additional information?

• 2 buses: $1643 * 13 flatcars = $21,359
• $45 * 25 buses = $1125
• 20 buses *$25 + 5 xtrabuses*$(25+15) = $700
• Hamburg → Santos = $6000
• Handling - $94 * 25 buses = $2350
• TOTAL = $31,534
• TOTAL per bus = $1,261.36